Coach Tumbles Most Since 2001 as North American Sales Slow

By Cotten Timberlake -
Jul 31, 2012

Coach Inc. (COH), the largest U.S. luxury
handbag maker, tumbled the most in almost 11 years after
reporting fiscal fourth-quarter revenue that trailed analysts’
estimates amid slowing sales growth in North America.

Coach fell 19 percent to $49.33 at the close in New York,
for the biggest drop since Sept. 17, 2001. The shares have
declined 19 percent this year.

Sales at North American stores open at least a year
advanced 1.7 percent, compared with a gain of 10 percent a year
earlier. Jennifer Davis, an analyst at Lazard Capital Markets,
projected an increase of 5 percent. Coach, facing competition
from Michael Kors Holdings Ltd. (KORS) and brands such as Tory Burch
and Kate Spade, is working to attract consumers who have curbed
spending on discretionary purchases amid slow economic growth.

“People are disappointed with the North American
comparable sales,” Davis said in a telephone interview today.
“The slowdown exacerbates concern that Coach might be losing
market share in the U.S.”

Davis, based in New York, recommends buying the shares.

Coach’s revenue in the quarter ended June 30 advanced 12
percent to $1.16 billion, the New York-based company said today
in a statement. Analysts projected $1.2 billion, the average of
estimates compiled by Bloomberg.

Consumer Spending

Consumer spending in the U.S. stagnated last month as
incomes increased. Household purchases, which account for about
70 percent of the economy, were unchanged in June after a 0.1
percent decrease the prior month, according to a Commerce
Department report today.

Coach said “an increasingly promotional environment”
prompted slower-than-expected growth at its factory outlets. The
company reinstituted discount coupons late in the quarter.

The outlets were “entirely responsible” for the sales
deceleration, Chief Executive Officer Lew Frankfort said on a
conference call today.

Net income in the quarter rose 24 percent to $251.4
million, or 86 cents a share, from $202.5 million, or 68 cents,
a year earlier, Coach said today. Analysts projected 85 cents a
share, the average of 26 estimates compiled by Bloomberg.